06 January 2012

The Man Who Lost $2 Billion in 2011

Warren Buffet lost about $2 billion in 2011, as reported by Andrew Frye of Bloomberg. The fall in Buffet’s stocks was recorded by Standard & Poor’s (S&P) 500 Index.


Though Buffet, Chairman and CEO of Berkshire Hathaway, claims to be at the top of the stock market, even during harsh times, last year saw a dip in his stocks. The loss of about $2 billion was mostly due to Berkshire’s fall of 4.7 percent, in stocks, last year. The fall in Berkshire’s stocks last year comes as a surprise as this company has exhibited an increase of 17 times its value since its inception and an increase of 4 times in its index. David Rolfe, Chief Investment Officer (Berkshire Investor Wedgewood Partners), said that Berkshire is a “strong performer” in “tough markets.”
The Man Who Lost $2 Billion in 2011


Buffet held the first share-repurchase programme in the last 40 years. Also, the stock prices of Berkshire fell at an all-time low in the 3rd quarter last year. Berkshire also underwent insurance claims in connection with natural calamities and derivatives affecting institutional portfolios. David Sokol, former Chairman, President and CEO of NetJets, closely associated with Berkshire, and his resignation from his company, due to allegations of insider trading, further affected the stocks of Berkshire. Berkshire also owns the largest percentage of share in Wells Fargo & Co. (WFC), a bank head-quartered in San Francisco. WFC’s value dropped by 22 percent last year, thus, sinking $2 billion of Berkshire.


The main reason behind the declining stocks of Berkshire is ‘insurance losses’. Charles Munger, Vice Chairman (Berkshire) said that the insurance losses of Berkshire were mainly due to the earthquake and tsunami in Japan in the earlier part of 2011. According to Financial Report, there was a 58 percent drop in the profits of Berkshire in the 1st quarter of 2011, when compared to that of 2010, due to the natural calamities in Japan. This was due to massive losses in the forex trading of Berkshire. The insurance losses went as high as $1.7 billion dollars due to tsunami and earthquake in Japan, floods in Australia and earthquake in New Zealand.


Despite the losses, Berkshire registered a net profit of $131 million last year. This number, however, is very small when compared to the net profit of $1.2 billion in 2010. According to data collated by Bloomberg, Berkshire’s Price-to-book-ratio on 31st December, 2011 was around 1.2, which is greater than that of 1.1 in 2010. Also, the Book Value of Berkshire increased by 1.7 percent amounting to $160 billion in the 3rd quarter of 2010.